Friday, September 30, 2016

In the early days of software, products were designed using the the “waterfall method”. Requirements were gathered first, then came design, then came implementation, then came verification, and then came maintenance. The lion’s share of the work was done up front — set in stone before the recipient even had a chance to respond. Once one phase was done, there was no turning back. Everything flowed in one direction. Downward. Like a waterfall.

So, what if the downstream recipients — the end users of the software — discovered that the upstream assumptions were incorrect? Oops. Too bad!

The result? Lots of bad software that didn’t meet the needs of its users.

These days, software is built using “agile techniques” instead. Now the water flows rapidly in both directions. Work is done in short iterations. Assumptions are tested with end users at every turn. Course corrections happen repeatedly.

The result? Good software that meets the needs of its users.

In his bestselling book, The Secrets of Happy Families, Bruce Feiler argues that parents should apply that same agile approach to building strong families. And money habits are a key part of the picture. See chapter 5, “The Buck Starts Here”, featuring yours truly.

The old-school waterfall approach to parenting, characterized by one-way phrases like “do as I say because I said so” or “do it because that’s how it was when I grew up”, doesn’t work.

Why? Kids have different personalities, evolve over time, and live in a different circumstances than we did. Constant change demands constant refinement.

So, take a page out of the agile book instead: constantly test new approaches with the kids, gather feedback, and refine accordingly.

Thursday, September 29, 2016

Stores are very clever at turning the act of entering one into a sense of obligation.

Time spent helping you, a special discount, a free sample. All play off the powerful pull of reciprocity. The store has given you something, so naturally you owe them a sale in return.

No you don’t.

It’s OK to politely say you didn’t find what you were looking for, or you need some time to think things over. It’s OK to leave empty handed.

The next time you’re in a store with the kids, challenge them to identify all the subtle reciprocity techniques at play. The free samples in a grocery store are a classic example.

Show your kids how you’re perfectly comfortable leaving stores empty handed. When you do, explain why the product, the service, the price, or the timing wasn’t quite right. Make sure they realize who’s boss: the buyer, not the seller.

The more your kids understand retail reciprocity tricks, the more comfortable they’ll feel leaving stores with nothing in their hands and dollars in their pockets.

Tuesday, September 27, 2016

Most people don’t learn about emergency funds until they’re off on their own. And usually it’s after they’ve already dug themselves into a big financial hole. That’s why an emergency fund is the very first step in Dave Ramsey’s famous 7 baby steps to help people dig out of financial distress.

But what if we taught people about emergency funds much, much earlier? Why not take that first financial baby step as a kid?

Kids and teens certainly have plenty of little emergencies to cut their teeth on. Like:

That third lost sweatshirt.

The new shoes left on the soccer field, never to be seen again.

The hockey puck through the garage door window. Six times.

The gaping holes in the fence from constant lacrosse ball shelling. See evidence in picture above.

The glass pane in the side door cracked by a hurled cell phone. The culmination of a hormonal teen tantrum, the dramatic origins of which have been long forgotten...

The massive data plan overage charge.

The gold license plate replacement for the snooty Jaguar owner on the receiving end of a fender bump in the Starbucks parking lot.

Some or all of these may or may not have been actual emergency moments from my five kids’ earlier years. I’m not naming names...

Unless my family is completely abnormal, you’ll also have plenty of opportunities to deploy some emergency funds long before your child’s passage to adulthood.

Divert a slice of allowance, chore, or odd job income to fill the fund. Temporarily amend your kid’s spend-save-give allocations to factor in the new emergency bucket. Revert to the original allocation once the emergency fund hits the target — maybe $25 for a youngster, $100 for a pre-teen, and $500 for a teen.

Share some skin on the next emergency. Some emergencies may extend well beyond your kid’s means. Sharing the costs on a case-by-case basis is fine. As long as there’s some shared skin in the game, the lesson will be learned.

Sunday, September 25, 2016

If you’re in the pay-for-chores camp, how do you decide the going rate? You can make it up, ask other parents in your network, rely on survey data, or calibrate using actual data. A mixture of all four might be the way to go.

I decided to see how their survey stats stack up to the actual data we see from current, paying FamZoo families. I say “paying”, because free trial families might just be messing around. Paying families are serious. As they say, “money talks, bullcorn walks.”

Here’s a chart comparing the Country Financial survey data with actual FamZoo data for selected chores in 2016:

Chore

SurveyAvg

FamZooAvg

FamZooMin

FamZooMax

FamZooMedian

Mow Lawn

$6.28

$7.90

$0.90

$25.00

$5.00

Do laundry

$2.82

$1.38

$0.02

$25.00

$0.75

Vacuum

$2.55

$1.67

$0.02

$8.00

$1.00

Do dishes

$2.03

$0.83

$0.01

$3.50

$0.50

Set/Clear Table

$1.31

$0.64

$0.02

$4.50

$0.50

Make Bed

$1.18

$0.41

$0.05

$2.00

$0.25

For our data, I include the average as well as the maximum, minimum, and median.

Pay attention to the median. It’s the number you would find if you lined up all the amounts from lowest to highest and picked the one in the middle such that half of the numbers are on the left and half are on the right. When the median is lower than the average, you’ve got some big outlier numbers on the right that you may want to ignore.

Why do some kids get paid as much as $25 to mow the lawn while others make less that $1? Well, for one thing, a “lawn” in the country might be measured in acres, while a lawn in a suburb or city might be measured in feet. Similarly, vacuuming might mean one carpet or the whole house.

The bottom line: use stats as a sanity check when calibrating chore payments, but ditch the outliers, favor actual data over survey data, and factor in your own judgement to get the best results.

Come to think of it, that’s a good maxim to share with your kids in general.

Used correctly, allowances don’t spoil. They teach kids to be responsible and thoughtful with money.

If you’re seeing otherwise, your allowance approach needs a tune-up.

A well-tuned allowance:

Tracks a budget. Why guess at the right amount? Sit down with your kid. List the things the allowance should cover. Put it in concrete terms. Calculate the right amount accordingly. Little knick-knacks for youngsters? Set the allowance to the price of a favorite regular treat plus a smallish fraction of a modest toy purchase — enough to require plenty of patient saving to close the deal. Clothing for a teen? Put your teen in charge of a budget proposal for the season or year. Review and revise to negotiate the final amount. Consider using the premium price rule: allowance covers the bargain price. Anything above is on your teen.

Forces trade-offs. When is an allowance too much? When you don’t see your child agonizing over tough financial choices. As Oprah says, “You can have it all, just not all at once.”

Allows mistakes. Aside from a few obvious ground rules (no beer or cigarettes!), let your kids make the purchase decisions. A bad purchase is a learning opportunity. My now twenty-something daughter still remembers torching her annual clothing budget on that Neiman Marcus chiffon gown for high school prom. Total times worn: one. Pro tip: make kids submit written proposals for questionable purchases.

Enforces consequences. Going cold turkey on clothing for the remainder of the school year is what made my daughter’s gown decision so memorable. A bail-out from mom and dad would have erased the memory. (A formal loan might be an acceptable alternative though.) A budget-based allowance is an up-front agreement. Stick to it.

Saves you money. Yes, you read that right. A well crafted allowance plan doesn’t create extra spending. It pays for things you would have purchased anyway. Even better, it constrains spending. It transforms ad hoc, emotional spending on kids into controlled, mindful spending by kids. That’s a recipe for saving. And learning.

Kids pay attention when it comes to money. They hear what we say. They see what we do. When the two don’t match, they get confused. Ditch the disconnects. Tell it like it is, and give your kids money clarity.

Compound interest. “I wish I had learned about compound interest! Ah! If I had known what that was, I know I wouldn’t have spent all my money on glazed donuts and Mountain Dew.” ~Steve Stewart

Investing early. “I wish my dad had said to the 22-year old me, ‘Look, just put 150 bucks a month away and forget about it.’ Even if I had just done that, now that I’m 43, it would have been a pretty colossal sum of cash. But, I didn’t know that enough.” ~Michael O’Neal

Abundance mindset. “I wish I had known growing up that I’ll always be able to make money, and this is true of everyone. There was so much fear around money that was unnecessary.” ~Dave Asprey

Wednesday, September 21, 2016

I just paid a whopping $8.10 for two piddly snack bars instead of $2.11. Doh!!!

Why? I’m a “captive” in this hotel. It’s over a mile in either direction to the nearest grocery store. Of course, they have a “convenient” little shop in the lobby that’s right on the way to the conference session I’m hustling to attend. Cha-ching!

This is a classic example of a vendor leveraging the powerful combo of captivity and convenience to raise prices and profits.

If consumers have no where else to conveniently go for an alternative, vendors know they can command super premium prices. Common captive venues include airports, sporting events, and movie theaters.

Next time you’re out with the kids, see if you can find some classic price gouges driven by the captivity and convenience combo. Work out the math together to see what the items would have cost in a non-captive venue. What kind of markups do you find?

In my case, if I had remembered to purchase snack bars in advance and in bulk at the grocery store, the math would have been:

Nature Valley Oats ’n Honey bars: $4.79 for 12 with 2 in each pack = $0.20 per bar. (Yes, the hotel convenience shop sold “special” packs with only one skinny bar inside instead of the typical two.)

Clif Oatmeal Raisin Walnut bars: $22.90 for 12 = $1.91 per bar.

$0.20 + $1.91 = $2.11

The $8.10 I paid is almost four times what I could have paid!

People often underestimate the size of the “captive audience tax.” In my case it was an astounding 284%. Yikes!

The money message for kids: Don’t let your wallet be abducted by the “captive audience tax.” Anticipating a captive venue and buying in advance can liberate big bucks.

Why? Scarcity is one of the most effective sales tools there is. It’s one of the big six (along with reciprocity, commitment/consistency, social proof, authority, and liking) identified by Robert Cialdini in his classic book, Influence: The Psychology of Persuasion.

The next time you’re with the kids shopping in a store, browsing online, or watching commercials, see how many examples of scarcity marketing you can identify together. How many are legitimate? How many are a stretch? How many are completely absurd? Limited supply on a digital download? Really?

The more your kids can understand, identify, and even mock classic manipulative sales tactics like scarcity, the easier it will be for them to resist their lure.

So hurry! Time is running out! Educate your kids about scarcity marketing tactics now before it’s too late!

Monday, September 19, 2016

It turns out, merely paying attention can save you money in all kinds of ways. Not paying interest is just one. It’s an excellent message to regularly reinforce with your kids of all ages — especially in today’s “click-through”, attention deficit world. Here are just a few examples to share with your kids and teens.

Pay attention, not...

High prices for small quantities. Teach your kids to pay attention to unit prices. Is there a discount for buying in bulk? (If so, will they actually use it all?)

Late fees. Teach your kids how to pay attention to when items are due back or when bills must be paid to avoid incurring unnecessary late fees. The lessons can start early with returning books on time to libraries and schools. Older kids can learn to meet monthly billing obligations. Start by charging them a share of the monthly family cell phone plan. Impose a parental late fee if they can’t cough up the funds on time.

Hidden fees. Teach your kids to scour the terms and conditions of the financial products they use. Play bank fee bingo.

High recurring rates. Teach kids to pay attention to all the payment plans available for recurring services. Does paying for a longer term in advance reduce the rate for that online gaming service or that prepaid card?

Longer answer: the law has its origins in the 2001 USA PATRIOT Act which provides tools to intercept and obstruct terrorism. Section 326 of Title III stipulates that financial institutions must take reasonable steps to identify owners of bank accounts as a means of counteracting money laundering operations. That means putting in place a Customer Identification Program (CIP). You’ll also hear banks refer to this as Know Your Customer (KYC). Section 326 of the PATRIOT act was implemented by federal regulations in 2003. The bottom line:financial institutions must collect the name, date of birth, address, and social security number or other government identification number (passport number or other similar information in the case of foreign persons) for the legal account holder at the time a new account is opened.

Saturday, September 17, 2016

Like any skill, managing money takes hands-on practice. So what’s the best way to put some funds in your kids’ hands? A regular fixed allowance? Payments for specific completed chores or odd jobs? A combination of the two? Or, perhaps neither — just make one-off transfers when necessary.

Here’s what FamZoo.com parents are doing based on anonymous statistics collected from paying families in the last 60 days:

Video Transcript

Hey, Bill here. As always, thank you for the nice mentions on social media.

Studies confirm people spend less when they use cash. Why? People feel more emotional “pain” and a sense of loss when they part with physical money. Cashless methods like cards and electronic wallets feel relatively “painless.”

So here’s the problem: like it or not, our kids are making more and more transactions online. Cash simply doesn’t fly there.

So how do we as parents manufacture some tangible pain around cashless payments to keep our kids’ spending in check?

Instant parental notifications.
Find a payment solution for your kids that let’s you set up instant activity notifications that can be delivered to multiple family members.
That means mom and/or dad can receive a text message as soon as Junior swipes the card.
Now Junior knows a questionable purchase will likely lead to an immediate, painful interaction with mom or dad.
The notification arrangement will certainly give Junior some pause before each swipe.
And that’s a good thing.

Now, is this invasive parental meddling? Some might think so.
But I think it’s more about establishing transparency, accountability, and mindfulness — especially for inexperienced spenders.
Think about it: Should your kid really be buying anything you can’t discuss openly?

Thursday, September 15, 2016

Studies confirm that people spend less when they use cash. Why? “The pain of payment” is what Avni Shah, a professor at U of T Scarborough, calls it. People feel more “pain” when they spend with tangible bills, and less when they spend with cashless methods like cards and electronic payment.

So how do we manufacture some tangible pain around cashless payments to keep our teens’ spending in check?

Notifications. Give your teen a cashless payment solution with the ability to configure alerts that can be immediately broadcast to multiple family members. That means mom and/or dad can receive a text message as soon as Junior swipes the card. That, in turn, could lead to a slightly painful parental exchange, depending on the purchase. The arrangement will certainly give Junior some pause before each swipe.

Is it invasive parental meddling? Some might think so. But I call it transparency and accountability — especially for inexperienced spenders. Should your teen really be buying anything you can’t discuss openly?

Wednesday, September 14, 2016

Today, a young man posted the following in a popular personal finance group on Facebook:

“Does anyone have any real experiences with audits on HSA accounts? Does it happen?
I’m realizing now that I may have made some deductions on some ‘unqualified expenses’.”

This fellow just announced to the world that he may owe the IRS back taxes and a hefty 20% penalty because he used his Health Savings Account to pay for something he shouldn’t have.

While it’s laudable if he wants to correct his potential mistake, a public electronic forum isn’t a smart place to be making financial confessions attached to your real name.

Why?

It’s a public invitation for an audit. He may as well have posted: “IRS: please audit me.’ Someday, I wouldn’t be surprised to learn that IRS computers are mining public social media data to automatically identify audit candidates. Maybe they already are — like bill collectors. An audit is never a pleasant process, whether innocent or not. Better to determine how to correct your tax mistakes in private than publicly invite an audit.

It’s a public invitation for scammers. This fellow may now receive Facebook messages from people trying to take advantage of his ignorance: “Pay me $X, and I’ll fix the problem for you.” Or, worse, extortionists: “Pay me $X, or I’ll turn you into the IRS.”

But if kids never experience the pain of overdraft fees on their prepaid cards, how do they learn to avoid them when they transition to traditional checking accounts as adults?

That’s where the Bank of Mom/Dad steps in.

Whenever your kid gets a decline for insufficient funds, assess your own Bank of Mom/Dad overdraft fee. Maybe start with $3 instead of $34. If the habit persists, you may need to ratchet it up until you find the right pain point to curb the bad habit.

If you’ve set up a family banking system with your prepaid cards, you can ding your kid immediately with a card-to-card transfer back to your parent card — assuming there are sufficient funds to cover the fee. If not, record an IOU on a sticky note, the fridge, or a spreadsheet. Then, the next time a transfer is due for an allowance, chore, or odd job payment, deduct any pending fees first.

You won’t be raking in $5.1 billion in overdraft fees annually like America’s three biggest banks, but at least your kid won’t be feeding that beast later as a young adult.

Sunday, September 11, 2016

Early in the morning fifteen years ago, I sat in my California office at Oracle Corporation exchanging messages with my colleagues in the UK. Our disbelief mounted as the ghastly events of 9/11 unfolded in real time.

Meanwhile, Todd Beamer, another Oracle employee, huddled with other passengers and crew in the back of the cabin of Flight 93 hatching a plan to storm the terrorists in the cockpit.

Check credit reports regularly. A credit report will show any credit card accounts in your name. Scan all open accounts and inquiries for anything out of the ordinary. Show your teen how to get a free credit report every 4 months here.

When identity thieves work inside our own major banks, your teens can’t be too careful. Sad but true.

Friday, September 9, 2016

Prepaid cards are excellent financial training wheels for your kids. Kids learn the responsibility of managing a real account and a real card without the hassle, risk, or fees of a typical credit card or bank debit card.

So, once you can find an offering like that, here’s how you set things up:

Get one main card for you, the parent. I call mine my Bank Of Dad Card. Load it up every once in awhile from the outside world with a chunk of funds. I load mine with a bank transfer from my checking account.

Get sub-cards for your kids. In fact, my kids each have multiple cards for spending, saving, and donating so they learn to bucket their funds.

Move money between your main card and your kids’ cards frequently and in smallish amounts. Credits might include a regular allowance, an odd job or chore payment, a parent-funded interest payment to encourage saving, or a reimbursement for a purchase that you’ve decided to cover. And money can move in the other direction back to the parent card too: like a family billing for your kid’s portion of the monthly cell phone plan, or a penalty for blowing off chores, or even a repayment on a Bank of Mom or Dad loan.

Periodically reload your parent card from the outside world again when it gets low.

Now you’re running your own little family banking system and family economy with a set of prepaid cards where you control all the knobs and dials and consequences, not the bank.

Once your kids train up and prove themselves in your family banking system, they’ll be ready for the real banking system. Which, as we all know, is a whole lot less forgiving!

All it takes is one hasty click on a link and one careless download to put a fraudster on a path toward your financial accounts. You just can’t remind your kids enough: cyber security and financial security go hand in hand.

Share this example with your kids so they don’t get blindsided by a blind carbon copy phishing email. Learn more about detecting and handling fraudulent communications in my earlier post: Teach Kids How To Catch Phish.

Phishy emails can come from anywhere, even your own brother. Teach your kids to sniff them out.

Wednesday, September 7, 2016

Do your kids know they typically get three tries to get the PIN right when using debit cards?

After three incorrect PIN attempts, most card processors will automatically block the card to protect against fraud. That means all subsequent purchases will be denied — not just PIN purchases.

Talk about a hassle and a panic when your kid needs access to funds in a hurry! To lift the automatic fraud prevention block, the cardholder typically needs to call the number on the back of the card and supply convincing evidence of identity.

I just checked. In the last 30 days, “too many PIN attempts” was the 5th most popular reason for declines among FamZoo cardholders (behind insufficient funds, billing address verification failures, card security code issues, and getting the PIN wrong the first three times).

So, when you get your kid that first bank or prepaid debit card, be sure to set the PIN to something secure and memorable. Though disturbingly popular, 1111 and 1234 are not wise choices! Nor is a birth date. Nor is simple a pattern on the keypad. Nor is keeping your PIN on a piece of paper next to the card in a wallet or purse. Check out some good tips for making secure PINs and keeping them safe here.

The transaction will be declined (most cases). The result: no overdraft or fee, but an embarrassing reminder for your teen to check the card’s balance beforehand and keep a little cushion in the account for little emergencies or miscalculations.

The transaction may be honored by the bank, but no overdraft fee can be assessed. The result: typically a negative balance until the account is replenished with a sufficiently large deposit or transfer.

So, your bank debit card toting teen is safe from dreaded overdraft fees as long as you opt out properly, right?

Nope.

Notice how I said “one-time” debit card transactions above. That’s because overdrafts from recurring charges are not protected by Regulation E. So, whenever your teen registers a debit card as the source for automated monthly or annual billing, there’s a risk of incurring overdraft fees. Think Spotify, Netflix, online gaming subscriptions, or even that monthly gym membership. In those automated repeat-billing cases, your bank or credit union is free to charge a fee for an overdraft, whether you opted out of the debit card overdraft service or not.

So, find out how your bank or credit union handles the overdraft situation with automated repeat billings. If your teen incurs an overdraft, ask them to waive it. Sometimes they will.

Better yet, find a reloadable prepaid debit card offering for your kids that guarantees no overdraft fees of any kind, ever. I happen to know of one here. There are others. Shop around and compare.

When it comes to overdraft, I’ll take my teen’s embarrassment over $35 fees every time, not just one-time.

Sunday, September 4, 2016

“Hello — is it possible to apply the interest rate to all accounts and not just the savings account? I like the idea of dividing deposits into different accounts with different goals, but I don’t want to ‘penalize’ my kids for setting aside money for charitable donations.”

Saving is a critical life skill. Motivating it with interest makes sense.

But what about giving? Why not offer that same encouragement for accumulating charitable funds? Encourage your kid to take the time to make a well-considered donation. Send the message that giving is just as important as saving. It turns out philanthropy is a critical life skill too.

OK, then what about spending? Does it make sense to offer an interest rate on your kid’s spending account too? Crazy talk? Not necessarily. Paying interest on a spending account rewards NOT spending. It also rewards maintaining a cushion — a nice little buffer that acts as a mini-emergency fund for that forgotten recurring charge or unanticipated expense. That’s an important life skill too. Stuff happens.

If you’re only rewarding saving, you might be sending the wrong message about giving and NOT spending. Offering interest on all three types of accounts might just make a lot of sense.

Thursday, September 1, 2016

“Research by the
Consumer Financial Protection Bureau and others indicate that the personal traits, habits, and behaviors that lead to financial
well-being in adulthood start to form as early as preschool.”~CFPB Money As You Grow Book Club Guide

Parents often ask me: “When is the right age to start teaching kids about money?”

“Reading books with children is a creative way to learn about the
many sides of money management. Talking about the mistakes
Alexander makes with his money in Alexander, Who Used to be
Rich Last Sunday can help children more carefully consider similar
decisions. Talking about how Mom can help her children accept
‘no’ as the answer when they have the ‘I wants’ in Mercer Mayer’s
Just Shopping with Mom can help children understand and
better cope with a ‘no’ in real life.”

The guide includes a matrix of the key ideas covered in each book, suggested related activities, and tips for how to get the most out of the reading experience. It’s a bit formal and dense (hey, it’s a government publication!), but it’s worth skimming.

If you’re looking for a more accessible and personal rundown on the books, check out this delightful post by Jim Wang over at WalletHacks. He sat down and read through each book with his five year old son. You’ll get a good sense for the reception and key takeaways you can expect from a typical youngster.

If you tackle all nine books and hunger for more or need to satisfy an older audience, check out my crowd sourced list: Best Children’s Books for Money Lessons. If you have a favorite and don’t see it on the list, be sure to submit a nomination.

Now is the perfect time to curl up with your youngster, enjoy a good money-themed book together, and give your kid an early jump-start on the road to financial well-being.

Disclaimer

The content of FamilyFinanceFavs.com is for general information purposes only and does not constitute professional advice. Visitors to FamilyFinanceFavs.com should not act upon the content or information without first seeking appropriate professional advice.